Still waiting...

The finance ministers of the European Union called it a historic step.

The EU commissioner for economic and monetary affairs, Olli Rehn, told DW that the rules for a unified European bank regulation were a "breakthrough."  Cypriot Finance Minister Vassos Shiarly, who holds the rotating presidency of the finance ministers' meeting, described the new regulatory body as "a Christmas present for the citizens of Europe."

It took the finance ministers 14 hours to wrap the present, just in time for the start of the EU summit, and now it will be examined closely to determine exactly what's in it.

It's a complex compromise: for example, it only affects 150 big European banks out of the 6,000 which, according to a summit agreement made in October, were all to come under the regulator.

The chairman of the liberal faction in the European Parliament, Guy Verhofstadt, was skeptical. "You can't create a banking union if the ECB [European Central Bank] is only responsible for 150 of them," he said. "They have to have the possibility also of looking into the accounts of all the others."

But German pressure has led to the exclusion of smaller banks, including the German public savings and consumer banks, which will only be indirectly controlled.  Verhofstadt does not believe that's enough. "Many times the problems come from a small bank somewhere in Europe, and not from the big banks," he said.

The banking crisis in Spain, for example, was largely caused by risky property deals on the part of regional savings banks.

New regulators

The European Parliament will have to approve the finance ministers' plans by March, and the European Council and the parties want to start negotiations soon. According to the ECB, it will then take about a year before the new authority will be ready to take up its work under the auspices of the ECB. It will have its own management and supervisory board, to ensure that banking regulation and monetary policy remain independent of each other.

In cases of dispute, there will be a mediator within the European Banking Authority in London, a move intended to take account of the complex relationship between the 17 EU states which use the euro and the 10 which don't. The ECB is legally only responsible for the euro states, even if it is now to have the power to regulate all the EU's banks.

British Prime Minister David Cameron has already said, however, that Britain will not join in this kind of centralized banking regulation.

'Breaking the vicious circle'

Shiarly said he was confident that, in spite of the complicated structure, the system would soon have an effect.

"The establishment of the SSM [single supervisory mechanism] is a necessary precondition for the European Stability Mechanism to contribute directly to bank recapitalizations, rather than doing so via national treasuries, as is currently the case," he said. "Such a development will enable the vicious circle between banks and [sovereign states] to be broken."

Shiarly has an interest in seeing it succeed: Cyprus also needs help with its troubled banks, but doesn't want to run the money through its own budget and thus increase its debt. It wants the money to come from the ESM so that all the euro states are contributing.

Verhofstadt doesn't think the new regulation will arrive in time for Cyprus, which needs its money in just a few weeks.

"It'll take at least two, three years before that is in place," he told DW. "It will be necessary to do it in another way, case by case." A decision had already been made for Spain, and the same would happen for Cyprus to avoid a huge European banking crisis, he said.

Banking union more than just a regulator

Regulation is only a first step toward a real banking union, as Rehn points out: there's a lot to do before the monetary union has been thoroughly renovated. The next step will be a fund to cover the cost of winding down banks which fail, but it still isn't clear whether banks or states should be paying into that fund. Deposit protection remains for the time being in the hands of the individual states and their national banking authorities, which will continue to exist.

In the long term in a real banking union, though, deposit guarantees would have to be dealt with jointly. Economist Guntram Wolff, of the Brussels-based think tank Bruegel, warns against a failure of nerve.

"I think what's important in this compromise is that we have a banking union with clear lines of decision making which aren't too narrow," he said before the meeting. "A compromise which left most of the banks outside would be a bad idea for Germany and for Europe."

When they arrived in Brussels for their summit on Thursday, German Chancellor Angela Merkel and French President Francois Hollande were full of praise for the decision to set up the banking union.

Hollande described it as a good example of German-French cooperation, while sources in the German delegation were saying that they were happy that the agreement had been reached before the start of the summit. The problem had thus been taken off the table, so that the leaders could deal with political reform of the eurozone and wouldn't have to worry about the details of banking regulation.